MONEY, MONEY, MONEY (2 of 3)

In the last post we discovered the great sabotaging factor of your greater wealth (hint, it’s in the mirror). In this post I will suggest a few tools to help you get your finances back on the yellow brick road toward your pot of financial gold.

Most people’s financial life is like a runaway stagecoach, meaning they are completely out of control. Maybe even speedily heading in the wrong direction. And maybe headed for a cliff… without even knowing it.

So just like a runaway stagecoach, there are two very important things to do to regain control.

ONE: Get a Grip.

You have to first locate and grasp the reins. I find it shocking how few people have a financial budget—an accurate knowledge of what their monthly expenses and spending patterns are.

A Princeton research study reported less than 4 in 10 do. The other 60% have no idea how they are spending their money month to month (gasp!). Do you know? Right now, can you tell me what your total monthly expenses are?

If not, start grasping for your two reins now:

1) CASH FLOW

Get really clear on where it is all going. You might not even be aware of some of the leaks you have in your financial boat… or how small expenditures are adding up to big pitfalls. So, to find out where the leaks are and to promptly plug them, start tracking your spending.

Two tools I recommend: Quicken and/or Mint.com. I have found Mint.com to be extremely helpful in being able to easily, automatically and visually see where my finances are flowing and how my net worth is growing—week to week and month to month, from anywhere in the world—as it is stored on the Cloud.

2) NET WORTH

How much are you worth right now? If you don’t know off the top of your head, it isn’t good, and might be why your stagecoach has been traveling in the wrong direction.

Are you even sure what completes a personal financial statement and how to estimate your (true) net worth? If not, start there. If it hasn’t been updated recently, update it. To make this simple for you here is the personal financial statement template I use: Personal Financial Statement. It will guide you through the totaling up of your (accurate) current net worth.

TWO: Steer in the Right Direction

Now, like a runaway stagecoach, once you have a grip on the reins, it’s time to yank on them in the direction you actually want the stagecoach to go.

The next step is to start directing your finances toward the wealth-building goals you have. So, that suggests the first step to this is to HAVE some goals.

As Jim Rohn teaches, everyone should have a goal to become financially independent. I have a special clip I have pulled for you where Jim explains how to become financially independent. Find it here. Enjoy!

Financial Independence = No one having claim on your personal resources.

With my personal finances (beyond real estate) I don’t believe in carrying any debt (as in zero) whatsoever. I never have. I was taught early on if you can’t afford it you can’t have it, period. I use a credit card, primarily for tracking and mileage reward incentives, but it is completely paid for each cycle. I never revolve credit.

If you are not there, get there quickly. Make that your first and most urgent priority. Eliminate every expense beyond your absolute BASIC survival needs until you have zero credit card debt.

Oh… no… you didn’t?!It’s amazing to me when I know people who have thousands of dollars of credit card debt and I see them going out to dinner, go on vacation or go shopping for new clothes. Noooo! Am I saying if you have credit card debt you can’t treat yourself or have any fun? Yes! That’s exactly what I’m saying, if it costs MONEY (that you don’t have). Have all the fun you want if it’s FREE. What I am saying is you cannot afford treats or fun that costs money. Look, you already danced… no more dancing until the fiddler is fully paid up.

So, if you have any credit card debt, I want you to go through every single expenditure you have and eliminate or slash everything as deeply as possible and put yourself on a 100% spending freeze until you are credit card debt free. Harsh? Yes. Necessary? Yes. Your fault? Yes. Spending is an addiction. Stop it, cold turkey.

Now, once you are from behind the starting line and at least back at zero, now is time to take Jim’s advice of developing an economic or financial plan. Jim suggested figuring out HOW you want to live—modestly or extravagantly. That HOW will effect what your plan needs to be. As Jim said, it’s not the amount that counts; rather, it’s the plan that counts. Meaning, have a plan!

As Jim stated, “Financial independence is the ability to live from the income of your investments alone. Only then are you not working FOR the money.” So to figure out what your goal must be, simply do a quick algebraic equation.

Work the equation out to match your financial independence goal.

Now two tips to help you get there.

1) Increase your income… sounds obvious, but wait for it… WITHOUT increasing your lifestyle in equal proportion. THIS is why many people who even make a significant income STILL do not become wealthy. No matter how much money they make, their lifestyle (meaning expenditures) grows in equal proportion (sometimes even more) to their increased income.

More on this…Now I am not saying not to enjoy the fruits of your labor; God knows I like nice things and nice experiences, but they should be a fixed percentage of your income. Some people who make $50,000 a year, then make $100,000 a year, find a way to increase their lifestyle by an additional $50,000. No, I am suggesting that if your discretionary spending is 10% and you go from $50,000 to $100,000 in income, then your discretionary spending increase should only be $5,000—THAT’S the difference… and for most people’s mindset and behavior, a BIG difference. Don’t fall into the trap Jim warned us about; he said, “If your outgo exceeds your income, your upkeep becomes your downfall.”

2) Pay yourself first (this is of course after you are recovered from any credit card debt). One of the oldest tips in the financial playbook, but one of the most violated: At least 10% of everything you make is yours to keep… to put in an investment fund toward your wealth plan. And your goal is also to increase this percentage.

More on this…Fortune magazine reports that on average millionaires save more than 20% of their income. I’m sure that is part how they got there. To make sure this tip is executed I have found it is best to automate it—divert it BEFORE you even see it.” I have my account set up to take 20% of my monthly income and auto-deposit it into my investment account. I don’t have to think about it, make a choice to or not to do it and I never see that money in my regular banking accounts. I suggest setting up such a system for yourself. Money can burn a hole in your pockets (and your bank account), so be sure to pay yourself first. The best way to do that is to do it without thinking about it.

So, in conclusion, make a decision to be wealthy. People become wealthy because they decide to become wealthy. Those who believe they can become wealthy and are worthy of great financial wealth are the ones who will be. Because they believe this completely, they act accordingly. They consistently take the necessary actions that turn their beliefs into realities. Decide now that you are worthy of great wealth and it will be your first step toward great prosperity. Your mindset—your attitude—will determine your destiny.

Now… in the next post I will tell you what THE greatest investment opportunity is today! These are times of great uncertainty. But with uncertainty there is great opportunity—if you get tipped off. With the shake-up of the stock market, the housing market, the commodities market, the bond market, etc., one investment opportunity has opened up and can return several times your money, almost immediately, but certainly within the first quarter of earning reports. This will be the best investment tip you have ever gotten—I can promise that! I’ll let you in on it… next week.

What are your best wealth-management and growth practices? Share them with all of us in the comments below.

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52 Responses to “MONEY, MONEY, MONEY (2 of 3)”

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Happy New Year!

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Thanks for sharing such an important topic. I read your compound effect book and I tell you it is a book that I plan to read atleast once a year. It is very insightful and beneficial and I keep it handy all the time. Thanks and God bless.

I love mint.com. I’ve been using it for a couple of years now. Eliminates about 90% of the drudgery of entering the data. You get a weekly summary of where you are at, net worth, expenses everything. You can even set up a budget and it tells you when you have exceeded your budget.

The day I decided to turn my life around was the day that I actually took my entire life into account. I asked myself the question as to what my perfect world would look like. Then I created my perfect world on paper. This visual motivated me through the tough times and helped make all my efforts worthwhile. I understood that there may be setbacks and disappointments before the victory appeared. But my visual reference helped me to stay on my future. “Life is what you make it.”

There is a webpage out there called vertex42.com that has free downloadable spreadsheets that I used to track some of my expences. They have a similar one to Dave Ramseys Debt snowball. I would suggest checking it out.

What are your best wealth-management and growth practices? Share them with all of us in the comments below:

1. I continue to build my skills, learn from my experiences, and increase my competency each day. That in turn, increases my value.
2. My wife and I started our own business at age 25 (28 years ago) with the goal of creating world class service and employ a team of talented people committed to excellence that share in the vision. We attract, invest, and continue to build individual / team skills that create more value every day for both our team and our business. We now employ 225 people and our first employee is still with us from 28 years ago.
3. Our family is most important. The purpose of our business is to enhance the quality of our family life not take away from it. The more we give to ourselves the more we can give to others.
4. We stick to the basics. We have both a disciplined family budget and business budget that is simply built upon the fact that we receive more money than we spend.
5. I pay myself first every week into our 401k plan. It becomes massive over 28 years + of doing it consistently every week.
6. We save for a rainy day because it will rain one day. We were blessed to experience 24 years of making money, reinvested the money in the business and created a large amount of cash in savings. The past 3 years have been tough in real estate and construction however we still have a strong balance sheet and cash positive from our past savings. We’re investing in strengthening and upskilling our people while others go out of business. Business is now improving, we’re making money again and we already started saving for the next rainy day.
7. We employ a world class CPA as our CFO at our company to manage our cash daily and also a world class money manager and CPA to advise on our personal investments and foundation. We set goals and meet quarterly to monitor our progress and fine tune our strategy.